The Spiff Card Paradox

WEBINAR:On-Demand

Vendors are increasingly turning to preauthorized debit cards to disburse spiffs to partners for opening new opportunities and promoting products. To the solution providers, these debit cards are often a worse hassle than pennies collecting in an old jar.

How do you spend a $2.47 spiff? Is managing a $1.97 spiff worth your time?
And is a 56 cent spiff on your balance book a benefit or a burden?

Spiffs are a tried-and-true method for motivating sales. Vendors have long
used these rewards as a carrot for getting their VAR
partners to push specific products to customers and make a number or open new
opportunities.

There’s no shortage of such programs and promotions. Vendors are paying out
anywhere from $50 for a lead to $5,000 for helping a vendor close a deal. And
vendors are paying these spiffs in two forms: incentives to their partner
companies and directly to the partners’ sales representatives.

Increasingly, vendors are using preauthorized credit cards, cash gift cards
and debt cards as the preferred vehicle for spiff disbursement. To the vendor,
cash cards are an easy and efficient means for making incentive payments, since
they can contract with a bank or card company for managing the disbursements.
No checks to mail. No wondering when the spiff will be cashed. Everything is
closed on the ledger immediately.

Sounds good on paper, provided you’re the vendor and the debit card
processor. Solution providers appreciate the incentives, but these cash cards
present a significant problem over the preferred check, merchandise credits and
prizes that have been used as rewards.

A sales rep getting a preloaded credit card can use them to buy groceries,
movie tickets, books and other goods for family and friends. But solution
providers who get these cards have a harder time using the digital cash. In
fact, some solution providers who get these cards as company spiffs often have
to sit on them because using a $50 card isn’t that easy when many purchases
tally in the hundreds and thousands of dollars.

One solution provider recently told me that he’s sitting on a pile of debt
cards his company has received as spiffs and sales rewards. Since these cards
aren’t convertible to cash, they just have to hold them. When they collect
enough to equal the purchase amount of a new piece of equipment, they have to
go through the hassle of splitting the purchase among multiple cards like large
parties do at restaurants (and we all know how much time that takes and how
happy it make a waitress).

Even when you’re able to use these cards, you’re rarely able to use the full
value. A fractional purchase results in an unused balance. Hence, remnant
spiffs in odd amounts of $2.47, $1.97 and 56 cents.

OK, here’s the really bad news. These remnant spiffs count as cash on the
balance sheet. That means your company will appear to have more cash on hand
because of these cards, even though the balances aren’t convertible to cash or
easily used for purchases. They’re no help in making payroll and a big hassle
to use for making purchases. But they will sit on the ledger looking real
pretty to an accountant.

Spiffs are and will continue to be an effective motivator for channel sales.
But company spiffs paid in debt cards are more likely to be like pennies
collecting in an old mason jar. The difference is that you can always roll up
the pennies and convert them to real dollars.

Lawrence Walsh is editor of Baseline magazine, overseeing print and online editorial content and the strategic direction of the publication. He is also a regular columnist for Ziff Davis Enterprise's Channel Insider. Mr. Walsh is well versed in IT technology and issues, and he is an expert in IT security technologies and policies, managed services, business intelligence software and IT reseller channels. An award-winning journalist, Mr. Walsh has served as editor of CMP Technology's VARBusiness and GovernmentVAR magazines, and TechTarget's Information Security magazine. He has written hundreds of articles, analyses and commentaries on the development of reseller businesses, the IT marketplace and managed services, as well as information security policy, strategy and technology. Prior to his magazine career, Mr. Walsh was a newspaper editor and reporter, having held editorial positions at the Boston Globe, MetroWest Daily News, Brockton Enterprise and Community Newspaper Company.

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